Zhejiang Wanma Co., Ltd.'s (SZSE:002276) Shares Bounce 31% But Its Business Still Trails The Market

Those holding Zhejiang Wanma Co., Ltd. (SZSE:002276) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

In spite of the firm bounce in price, Zhejiang Wanma may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.5x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Zhejiang Wanma as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Zhejiang Wanma

Keen to find out how analysts think Zhejiang Wanma's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Zhejiang Wanma?

In order to justify its P/E ratio, Zhejiang Wanma would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 32% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 155% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 29% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 41%, which is noticeably more attractive.

With this information, we can see why Zhejiang Wanma is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Zhejiang Wanma's P/E

Zhejiang Wanma's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Zhejiang Wanma's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 1 warning sign for Zhejiang Wanma that you need to take into consideration.

Of course, you might also be able to find a better stock than Zhejiang Wanma. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.